What is M&A experience?
M&A experience, in financial markets, describes how many mergers and acquisitions (M&A) transactions are enacted. “Experience” as defined by Fintalent’s M&A experience consultants, means the number of M&As completed by a company or fund during a given period of time, usually one year or one trading day.
Experience is used broadly to measure a company’s ability to do M&As successfully. Experience is associated with a company’s valuation and used as a proxy for how successful M&As are in terms of valuations. For example, mid-cap companies that have experienced high valuations in the past often suffer subsequent declines.
Experience can also be seen as an indicator of a company’s success at raising funds from investors. Investors are willing to invest in companies with greater M&A experience as they may have had fewer issues with investments in these companies. This has the further effect of increasing their standing to win future M&A work.
Another measure of experience is first-mover advantage which measures how many transactions has a company done at their first attempt or as lead advisor. A successful bidder or underwriter is likely to have greater experience than a company that has not completed any transactions.
M&A experience can be used to measure the risk associated with an M&A transaction. For example, if the acquiring party has experience in a certain industry and size of acquisition, it would have learned lessons from previous deals and would be able to predict costs more accurately and make better estimates as regards how much pre-tax profits will boosted by synergies from the acquisition. This effect is known as first-mover advantage.
Experience can be used to measure the ability of a manager to pick winners from losers and how quickly they can pick up new skills in calculating future deals. When managers have gained experience of companies acquired, they are often able to identify better acquisitions than those suggested by inexperienced managers.
M&A experience is also associated with a company’s reputation for competency and professionalism in the market. A company with high experience is often perceived to be very good at handling transactions and are able to predict outcomes more accurately than new entrants. As a result, it becomes an attractive choice to investors as well as potential clients.
It can also be used in various parts of the deal process such as determining timing of a transaction and how it should be structured e.g. if a company has successfully bought or sold at least three companies of similar size in the past, the deal would be expected to run smoothly when one of these companies is acquired by another firm.
